DDIT, New Delhi V. M/s. Yum! Restaurants (Asia) Pte Ltd., New Delhi

ITA 6018/DEL/2012

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8180 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 03-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL GULATI
• Assessee Lawyers: SIDHAR
• Keywords: Business income; Double taxation relief; Permanent establishment
• Section: 143(3); 234B; 144C; 43; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI , !' $%&'()*+,-+! BEFORE MS. SUSHMA CHOWLA, VP & SHRI PRASHANT MAHARI SHI, AM . / ITA NO.6018/DEL/2012 / ) ) / ASSESSMENT YEAR 2008-09 THE DDIT, CIRCLE-2(2), NEW DELHI. .......... 01 /APPELLANT VS M/S. YUM! RESTAURANTS (ASIA) PTE. LTD., C/O-M.K.MANDAL & ASSOCIATE, 258, SATYAM TOWER, JWALAHERI MARKET, PASCHIM VIHAR, NEW DELHI-110063. PAN-AAACY2204M . $201 / RESPONDENT 0134+ / APPELLANT BY : SH. SATPAL GULATI, CIT DR $20134+ / RESPONDENT BY : MS. ANANYA KAPOOR, ADV. MS. SAKSHI JAIN, ADV. & SH. SIDHARTH KANWAR, ADV. 3&, / DATE OF HEARING : 16.03.2020 56 3&, / DATE OF PRONOUNCEMENT: 06.07.2020 +% / ORDER PER SUSHMA CHOWLA,VP THE PRESENT APPEAL FILED BY REVENUE IS AGAINST ORD ER OF CIT(A)-XXIX, NEW DELHI DATED 18.09.2012 RELATING TO ASSESSMENT YEAR 2008-09 AGAINST THE ORDER 2 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 PASSED UNDER SECTION 143(3) R.W.S 144C OF THE INCOM E-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN IGNORING THE DICTUM THAT EXISTENCE OF A PE IS A FINDING OF FACT AND ALLOWED RELIEF RELYING UPON CASE LAWS DISTINGUI SHABLE FROM THE CASE ON HAND ON FACTS, THUS IGNORING THE WHELMING FACTS IN SUPPORT OF EXISTENCE OF PE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN IGNORING THE FACTS THAT SECONDED EMPLO YEE MR. MEHBOOBANI RETAINED LIEN OVER HIS EMPLOYMENT WITH YRAPL, THAT HIS DEPUTATION AGREEMENT DID NOT SPELL OUT HIS TERMS OF WORK AND T HAT YRAPL CONTINUED TO DISBURSE HIS SALARY , ALL POINTING TO EXISTENCE OF PE. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN CONCLUDING THAT THERE IS NO LINK BETWE EN THE ROYALTY INCOME EARNED BY YRAPL AND THE FUNCTIONS PERFORMED BY MR M EHBOOBANI, WHEN THE STEWARDSHIP ACTIVITIES OF THE EMPLOYEE OF FURTH ERING THE BUSINESS OF YRIPL THROUGH NEW EQUITY STORES, FRANCHISEES AND BU SINESS DEVELOPMENT CONTRIBUTE TO INCREASED ROYALTY RECEIVED BY YRAPL A ND REQUIRE NO FURTHER EVIDENCE SUPPORTING THE AO'S FINDING OF PE. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN IGNORING THE DETAILED FINDING GIVEN BY AO IN THE ASSESSMENT ORDER REGARDING THE FACT THAT THE ASSESSEE HAS A PL ACE OF MANAGEMENT CONSTITUTING A PE IN INDIA AND REIMBURSEMENT OF SAL ARY AND OTHER EXPENSES MADE BY YRIPL TO THE ASSESSEE YRAPL IS TO BE CHARAC TERIZED AS FTS. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE CIT(A) HAS ERRED IN HOLDING THAT INDIAN AFFILIATES NAMELY YRIP L AND YRMPL DO NOT CONSTITUTE DAPE OR PE OF THE ASSESSEE IN INDIA DESP ITE FACTS MARSHALLED BY AO TO SHOW THE ASSIGNMENT OF RIGHTS AND OBLIGATIONS BY YRIPL TO YRAPL AND THAT INDIAN AE'S WERE WORKING WITHOUT COMPENSAT ION 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN NOT ADJUDICATING THE ATTRIBUTION OF AM P RECEIPTS OF YRMPL TO ASSES SEES PE, HOLDING THIS GROUND TO BE INFRUCTUOU S AND INCORRECTLY CONCLUDING THAT AMP EXPENDITURE OF INDEPENDENT FRAN CHISEES CANNOT BE HELD ATTRIBUTABLE TO ASESSEES PE. 3 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 7. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(A) HAS ERRED IN LAW IN HOLDING THAT INTEREST U/S234B WAS N OT CHARGEABLE IN THE ASSESSEE'S CASE, BY RELYING UPON THE DECISION OF HO N'BLE DELHI HIGH COURT DT.30.08.201 0 IN THE CASE OF DIT VS JACOBS CIVIL I NCORPORATED, WITHOUT APPRECIATING THAT THE LEVY OF INTEREST U/S 234B IS MANDATORY AS HELD IN THE CASE OF CIT VS ANJUM M. H. GHASWALA &OTHERS 252 ITR 1 (SC). 3. THE ISSUE IN THE PRESENT APPEAL IS AGAINST THE A DDITION ON ACCOUNT OF SALARY REIMBURSEMENT COST TREATED AS FEE FOR TECHNI CAL SERVICES (IN SHORT FTS) TAXABLE @ 10% AMOUNTING TO RS.1,47,35,151/- AND INC OME FROM BUSINESS AND PROFESSION TAXABLE @ 40% AMOUNTING TO RS.11,82,90,7 21/-. 4. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE IS A COMPANY INCORPORATED IN SINGAPORE, WHICH IS ENGAGED IN THE BUSINESS OF FRAN CHISING KFC, PIZZA HUT AND TACO BELL BRANDS FOR A NUMBER OF TERRITORIES IN TH E ASIA PACIFIC REGION (INCLUDING INDIA). FOR THE OPERATION OF RESTAURANT OUTLETS, THE ASSESSEE ENTERED INTO TECHNOLOGY LICENSE AGREEMENT (IN SHORT TLA) FOR LICENSE OF TECHNOLOGY AND SYSTEM WITH YUM! RESTAURANTS (INDIA) PRIVATE LIMITED (IN SHORT YRIPL). YRIPL IN TURN HAD APPOINTED VARIOUS FRANCHISEES FOR OPERATING RESTAURANTS IN INDIA UNDER THE BRAND NAME KFC AND PIZZA HUT. YRIP L ALSO OPERATED THE COMPANY OWNED KFC RESTAURANTS IN INDIA. AS PER TH E TERMS OF THE TECHNOLOGY LICENSE AGREEMENT, THE ASSESSEE WAS TO RECEIVE ROYA LTY AS UNDER:- 2.079% (I.E. 33% OF 6.3%) OF SALES OF EQUITY STORES . 33% OF ROYALTY, INITIAL FEES AND RENEWAL FEES COLLE CTED FROM FRANCHISEE STORES. 4 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 5. THE ROYALTY INCOME WAS OFFERED TO TAX IN INDIA O N THE BASIS OF TAX RATES PRESCRIBED IN DTAA BETWEEN INDIA AND SINGAPORE I.E. @ 10%. THERE IS NO DISPUTE WITH THE REGARD TO THE SAME. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PERSON EMPLOYED BY THE ASSESSEE, WORKING UNDER THE INDIAN ENTITY, WERE SECONDED TO INDIA; THE SALARY OF THE SAID PERSON WA S REIMBURSED BY THE INDIAN ENTITY AND HENCE TAXABLE IN THE HANDS OF THE ASSESS EE. THE CASE OF THE ASSESSEE WAS THAT THE SAID PERSON HAD SHIFTED TO INDIA AND W AS WORKING SOLELY FOR THE INDIAN CONCERN WHOSE SALARY WAS REIMBURSED. THE AS SESSING OFFICER HOWEVER, TREATED THE SALARY REIMBURSEMENT COST AS FTS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE FURNISHING OF SERVICES BY THE SEC ONDED EMPLOYEE WERE TECHNICAL IN NATURE AND TAXABLE AS FTS UNDER ARTICL E 12 OF DTAA BETWEEN INDIA AND SINGAPORE. THE ASSESSING OFFICER CAME TO A FIN DING THAT MR. VINOD MAHBOOBANI WAS THE EMPLOYEE OF THE ASSESSEE COMPAN Y AND SERVICES WERE BEING PROVIDED TO YRIPL BY MR. VINOD MAHBOOBANI ON BEHALF OF THE ASSESSEE COMPANY. 6. THE CIT(A) AFTER GOING THROUGH THE CLAUSES OF DE PUTATION AGREEMENT CONCLUDED THAT MR. VINOD MAHBOOBANI WAS UNDER THE C ONTROL OF YRIPL AND WAS WORKING FOR IT. THE CIT(A) ALSO HELD THAT HE WAS NOT THE EMPLOYEE OF THE ASSESSEE AND HENCE THERE WAS NO RIGHT/LIEN OVER HIS EMPLOYMENT AND HENCE, THERE WAS NO SERVICE PE. HE REFERRED TO THE VARIOU S EVIDENCES FILED BY THE ASSESSEE IN THIS REGARD AND ALSO REFERRED TO THE CL AUSES OF DEPUTATION AGREEMENT. THE REVENUE IS IN APPEAL AGAINST THE FIN DINGS OF THE CIT(A) ON THIS ISSUE. 5 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 7. THE LD.DR FOR THE REVENUE POINTED OUT THAT THERE IS TECHNICAL LICENSE AGREEMENT BETWEEN THE ASSESSEE AND THE YRIPL AND AL SO THERE IS DEPUTATION OF EMPLOYEE OF THE ASSESSEE COMPANY. HE FURTHER STATE D THAT THE PERSON WAS IN INDIA, WAS SECONDED TO INDIA AND THE QUESTION WAS W HETHER THERE WAS A PE OR NOT. HE REFERRED TO THE FINDINGS OF THE ASSESSING OFFICER AT PAGES 4 & 5 IN THIS REGARD. HE FURTHER STRESSED THAT THE ROYALTY WHICH IS OFFERED TO TAX BY THE ASSESSEE, WAS ON ACCOUNT OF SALES IN INDIA; ITS EMP LOYEE AND FUNCTIONS PERFORMED IN INDIA, BENEFITS BOTH THE CONCERNS. HE ALSO POINTED OUT THAT THE ROYALTY WAS PROPORTIONATE TO SALES IN INDIA. REFER RING TO PAGE 7 OF THE ASSESSMENT ORDER, THE LD. DR FOR THE REVENUE POINTE D OUT THAT THE CASE PUT UP BY THE REVENUE WAS OF SERVICE PE. HE WAS OF THE VI EW THAT SINCE IT WAS CASE OF ANCILLARY PE, MAKE AVAILABLE CLAUSE WAS NOT RELEV ANT; HENCE IT WAS CASE OF FTS. HE REITERATED THAT THE EMPLOYEE WAS IN INDIA TO PROMOTE THE BUSINESS OF THE ASSESSEE COMPANY. HE STRESSED THAT IT WAS A FA CT THAT THERE WAS NO SEPARATE AGREEMENT AND IT WAS ALSO A FACT THAT PERS ON HAD BEEN SECONDED. REFERRING TO THE ORDER OF THE ASSESSING OFFICER AT PAGE 8, LD.DR FOR THE REVENUE REFERRED TO THE SECOND ISSUE IN THE PRESENT APPEAL AND POINTED OUT THAT AS PER THE OECD GUIDELINES, EXTRAORDINARY EXPENSES RESULT IN BRAND BUILDING. AGAIN REFERRING TO THE ASSESSMENT ORDER PAGE 9, HE STRESS ED THAT IT WAS A CASE OF DEPENDENT AGENT PE AND THE AO CONSIDERED 2% AS REAS ONABLE AND APPLIED 3% AS INCOME. 8. THE LD.AR FOR THE ASSESSEE ON THE OTHER HAND POI NTED OUT THAT THE FIRST ISSUE RAISED IN THE PRESENT APPEAL WAS WHETHER THE RE WAS SECONDED EMPLOYEE 6 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 OF ASSESSEE COMPANY WORKING FOR IT RESULTING IN SER VICE PE. SHE TOOK US THROUGH VARIOUS PARTS OF THE APPELLATE ORDER TO ES TABLISH CASE OF NO RIGHT OR LIEN. OUR ATTENTION WAS DRAWN TO CLAUSES 2.1 & 2.2 OF THE DEPUTATION AGREEMENT UNDER WHICH DEPUTATION OF EMPLOYEE WAS GI VEN, BUT THE LIEN ON EMPLOYMENT WAS WITH INDIAN CONCERN, WHICH PAID HIS SALARY. IT WAS POINTED OUT THAT IN THE ABSENCE OF ANY SEPARATE SERVICE AGR EEMENT BETWEEN THE INDIAN ENTITY AND NON-RESIDENT ASSESSEE COMPANY, THERE WAS NO QUESTION OF ANY SERVICE PE. COMING TO THE ANCILLARY CLAUSE OF THE DEPUTATION AGREEMENT, IT WAS POINTED OUT THAT THE SAME WAS NOT THE CASE OF AO; F IRST THING TO DETERMINE WAS, WHOSE EMPLOYEE IS SECONDED. REFERRING TO THE DTAA BETWEEN INDIA AND SINGAPORE, OUR ATTENTION WAS DRAWN TO ARTICLE 5(8) & ARTICLE 7, IT WAS STRESSED THAT THE PROVISIONS OF ARTICLE 7 OF DTAA WOULD BE I NVOKED SINCE THERE WAS NO INCOME, AS SALARY PAID IS EXPENSE. THIS ARGUMENT W AS ON, WITHOUT PREJUDICE BASIS AND IT WAS STRESSED THAT EVEN IF THERE WAS PE , NO INCOME WOULD BE ATTRIBUTABLE TO IT AS THE EXPENSES/SALARY WOULD BE DEDUCTED AND HENCE THERE WILL BE NIL BUSINESS INCOME. IT WAS FURTHER STRESS ED THAT AS PER THE DTAA, INCOME ATTRIBUTABLE TO THE PE ONLY IS TAXABLE IN IN DIA. RELIANCE WAS PLACED ON THE DECISION OF AHMADABAD BENCH OF TRIBUNAL IN BURT HILL DESIGN (P.) LTD. VS DDIT (INTERNATIONAL TAXATION) (AHMEDABAD ITAT-164 I TD 697). 9. NOW, COMING TO THE NEXT ASPECT OF THE ISSUE, IT WAS POINTED OUT THAT AS PER ARTICLE 12 OF DTAA, FTS IS TAXABLE I.E. IF MA KE AVAILABLE CLAUSE IS FULFILLED, WHICH IS NOT THE CASE OF THE ASSESSEE. IT WAS ALSO POINTED OUT THAT IN THE ABSENCE OF ANY ELEMENT OF INCOME, IT IS A CASE OF C OST TO COST REIMBURSEMENT 7 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 AND THE SAME CANNOT BE TREATED AS FTS. THE LD.AR F OR THE ASSESSEE PRAYS THAT IT WAS A CASE OF PURE REIMBURSEMENT BEING RECEIVED BY THE ASSESSEE COMPANY AND IN THE ABSENCE OF ANY ELEMENT OF INCOME, REIMBU RSEMENT PER SE WAS NOT TAXABLE IN THE HANDS OF THE ASSESSEE COMPANY. FURT HER, THE EMPLOYEE MR. VINOD MAHBOOBANI HAD ALREADY PAID TAXES ON THE SAID INCOME IN INDIA AND TAXING THE SAID AMOUNT AS FTS WOULD AMOUNT TO DOUBL E TAXATION. 10. COMING TO THE SECOND ISSUE RAISED IN THE PRESEN T APPEAL I.E. ATTRIBUTION OF BUSINESS INCOME TO THE PE ON ACCOUNT OF MARKETIN G ACTIVITIES UNDERTAKEN BY INDIAN AFFILIATES ON BEHALF OF YRAPL TAXABLE @ 40%, REFERENCE WAS MADE TO PARAS 5.2.1 TO 5.2.4 AND PARA 6.2 OF THE CIT(A) ORD ER) AND NO DEPENDENT AGENT PE ( IN SHORT DAPE). THE CASE OF THE ASSESSEE IS THAT THERE IS NO DEPENDENT AGENCY PE (IN SHORT DAPE). THE LD.AR FOR THE ASS ESSEE REFERRED TO THE CONDITION PRESCRIBED IN ARTICLE 5(8) OF DTAA AND NO NE OF THE SAID CONDITIONS WERE SATISFIED BY THE ASSESSEE COMPANY. REFERRIN G TO THE ORDER OF THE CIT PARA 5.2.2 ONWARDS, THE SAME WAS VEHEMENTLY RELIED ON FOR THE PROPOSITION OF NON-APPLICABILITY OF ARTICLE 5(8) TO THE FACTS OF T HE CASE. THE LD.AR FOR THE ASSESSEE FURTHER POINTED OUT THAT THE CONTENTION OF THE AO WERE FACTUALLY INCORRECT. AS THE MARKETING ACTIVITIES WERE UNDERTA KEN FOR THE BENEFIT OF YRIPL AND ITS FRANCHISEE; THE ASSESSEE WAS NOT PARTY TO A NY AGREEMENT BETWEEN YRIPL AND ITS FRANCHISEE AND ALSO THE INDIAN FRANCHISEE W AS NOT THE AE OF THE ASSESSEE COMPANY. IT IS ALSO STRESSED BY THE LD.AR FOR THE ASSESSEE THAT IN THE ABSENCE OF ANY PERMANENT PLACE OF BUSINESS IN INDIA WHEREIN YRIPL WAS INDEPENDENT ENTITY HAVING OWN BUSINESS AND NO BUSIN ESS UNDERTAKEN BY YRIPL 8 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 ON BEHALF OF THE ASSESSEE COMPANY, THERE WAS NO FIX ED PE ALSO. RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF MORGAN STANLEY 292 ITR 416 (SC). 11. IT WAS ALSO POINTED OUT THAT THE DECISION OF HO NBLE DELHI HIGH COURT IN CENTRICA INDIA OFFSHORE PVT.LTD. [2014] 364 ITR 336 IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AND IS DISTINGUISHABLE. REFERRING TO PARA 34 OF THE JUDGEMENT, THE LD.AR FOR THE ASSESSEE STATED THAT I N THE FACTS OF THE SAID CASE, SALARY WAS THE RESPONSIBILITY OF FOREIGN COMPANY WH ICH WAS REIMBURSED BY THE INDIAN CONCERN, INCLUDING DIRECT COSTS; AND THE PER SONNEL ALSO RETURNED BACK. HOWEVER, IN THE FACTS OF THE PRESENT CASE, SALARY W AS PAID BY THE INDIAN CONCERN, INCLUDING DIRECT COSTS. FURTHER, MR. VINO D MAHBOOBANI ACTED AS DIRECTOR AND SIGNED ALL THE FINANCIAL STATEMENTS. FURTHER, THE SAID PERSON WAS NOT DEPUTED FOR SHORT PERIOD. REFERENCE WAS MADE TO THE LETTER OF DEPUTATION PLACED AT PAGES 429 AND OTHER DOCUMENTS AT PAGES 43 0 TO 433 OF THE PAPERBOOK. 12. THE LD.DR FOR THE REVENUE REFERRED TO CLAUSE 2. 2 OF THE SECONDED AGREEMENT. HE FURTHER POINTED OUT THAT ADDITIONS ON ACCOUNT OF FTS WAS UNDER ARTICLE 12 OF THE DTAA BETWEEN INDIA AND SINGAPORE. HE ALSO PLACED RELIANCE ON THE DECISION OF DELHI HIGH COURT IN CENTRICA INDIA OFFSHORE PVT.LTD. (SUPRA). 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE YEAR UNDER APPEAL IS ASSESSMENT YEAR 2008-09. THE ASSES SEE IS A NON-RESIDENT COMPANY INCORPORATED IN SINGAPORE. IT IS ENGAGED I N THE BUSINESS OF FRANCHISING KFC, PIZZA HUT AND TACO BELL BRANDS FOR A NUMBER OF TERRITORIES IN 9 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 THE ASIA PACIFIC REGION (INCLUDING INDIA). IT ENTE RED INTO TLA WITH YRIPL UNDER WHICH IT LICENSED TECHNOLOGY AND SYSTEM, FOR TH E OPERATION OF THE RESTAURANT OUTLETS IN INDIA. THE ROYALTY RECEIVED BY THE ASSE SSEE COMPANY UNDER TLA IS OFFERED TO TAX AND IS NOT IN DISPUTE. AS PER THE A GREEMENT BETWEEN TWO PARTIES, MR. VINOD MAHBOOBANI WAS DEPUTED TO INDIA. THE REL EVANT CLAUSES OF THE DEPUTATION AGREEMENT ARE REPRODUCED UNDER PARA 4.1 .9 OF THE APPELLATE ORDER. THE QUESTION WHICH ARISES FOR ADJUDICATION IS WHETH ER MR. VINOD MAHBOOBANI WAS WORKING FOR THE ASSESSEE COMPANY OR YRIPL, WHO HAD THE RIGHT OR LIEN OVER HIS EMPLOYMENT. THE CASE OF THE ASSESSEE IS THAT I T HAD NO RIGHT OR LIEN OVER THE EMPLOYMENT OF MR. VINOD MAHBOOBANI AND CONSEQUE NTLY, THAT HE WAS NOT THE EMPLOYEE OF THE ASSESSEE COMPANY. THE RELEVANT CLAUSES OF THE DEPUTATION AGREEMENT READ AS UNDER:- '2.1. HOME COUNTRY YUM! ENTITY SHALL NOT BE RESPON SIBLE FOR THE WORK OF THE INTERNATIONAL ASSIGNEES OR ASSUME ANY RISK FOR THE RESULTS PRODUCED FROM THE WORK PERFORMED BY THE INTERNATIONAL ASSIGN EES WHILE UNDER DEPUTATION TO YRIPL. THE INTERNATIONAL ASSIGNEES WH ILE UNDER DEPUTATION TO YRIPL SHALL NOT IN ANY WAY BE SUBJECT TO ANY KIN D OF INSTRUCTIONS OR CONTROL OF HOME COUNTRY YUM! ENTITY. THE INTERNATIO NAL ASSIGNEES SHALL FUNCTION SOLELY UNDER THE CONTROL, DIRECTION AND SU PERVISION OF YRIPL AND IN ACCORDANCE WITH THE POLICIES, RULES AND GUIDELINES GENERALLY APPLICABLE TO THE EMPLOYEES OF YRIPL DURING THE PERIOD OF DEPUTAT ION. HOME COUNTRY YUM! ENTITY WILL NOT HAVE CONTINUING OBLIGATION TOW ARDS YRIPL WITH REGARD TO THE PERFORMANCE OF THE INTERNATIONAL ASSIGNEES. 2.2 HOME COUNTRY YUM! ENTITY HEREBY AGREES TO RELE ASE AND DISCHARGE THE INTERNATIONAL ASSIGNEES FROM ALL OBLIGATION AND RIGHTS WHATSOEVER, INCLUDING ANY LIEN ON EMPLOYMENT, IF ANY, AND FROM ALL ACTIONS, CLAIMS AND DEMANDS TOWARDS HOME COUNTRY YUM! ENTITY, WHILE THE Y WERE WORKING AS EMPLOYEES OF HOME COUNTRY YUM! ENTITY. HOME COUNTRY YUM! ENTITY HEREBY ALSO AGREES THAT WHILE THE INTERNATIONAL ASS IGNEES ARE IN INDIA ON DEPUTATION, IT SHALL NOT ENFORCE ANY KIND OF CONTRA CTUAL OBLIGATIONS THAT THE INTERNATIONAL ASSIGNEES HAVE/HAD AS EMPLOYEES OF HO ME COUNTRY YUM! ENTITY. 10 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 2.3 DURING THE PERIOD OF DEPUTATION, FOR ADMINISTRA TIVE CONVENIENCE, HOME COUNTRY YUM! ENTITY SHALL MAKE PAYMENT TOWARDS SALA RY, BONUS AND ALL OTHER ELIGIBLE BENEFITS TO THE INTERNATIONAL ASSIGN EES AS PER TERMS AGREED WITH THE INTERNATIONAL ASSIGNEES (ON BEHALF OF YRIP L) AT THE TIME OF THE DEPUTATION AND INTIMATE YRIPL OF THE SAME. 2.4. YRIPL SHALL REIMBURSE HOME COUNTRY YUM! ENTITY FOR PAYMENTS MADE TOWARDS SALARY, BONUS AND ALL OTHER ELIGIBLE BENEFI TS OF THE INTERNATIONAL ASSIGNEES IN RELATION TO THE PERIOD OF DEPUTATION. FOR THIS PURPOSE, HOME COUNTRY YUM! ENTITY WOULD PRODUCE THE NECESSARY DOC UMENTARY EVIDENCE SUPPORTING THE PAYMENT TOWARDS SALARY, BONUS AND AL L OTHER ELIGIBLE BENEFITS TO THE INTERNATIONAL ASSIGNEES, TO YRIPL, TO ENABLE THE LATTER TO MAKE THE PAYMENT. 2.5 ALL OTHER COSTS AND EXPENSES IN INDIA RELATING TO THE INTERNATIONAL ASSIGNEES, INCLUDING WITHOUT LIMITATION, REASONABLE EXPENSES RELATING TO BOARDING AND LODGING, FOOD AND BEVERAGE, TRAVEL AND OTHER MISCELLANEOUS EXPENSES ASSOCIATED WITH THE PERFORMANCE OF WORK BY THE INTERNATIONAL ASSIGNEES SHALL BE BORNE BY YRIPL. 2.6 YRIPL SHALL BE RESPONSIBLE FOR COMPLYING WITH T HE REQUIREMENTS OF WITHHOLDING TAX UNDER THE INDIAN TAX LAWS, ON SALAR Y AND OTHER RELATED ENTITLEMENTS PAID TO THE INTERNATIONAL ASSIGNEES. 2.7 ONCE THE INTERNATIONAL ASSIGNEES ARE DEPUTED TO YRIPL, THE HOME COUNTRY YUM! ENTITY SHALL NOT HAVE THE RIGHT TO REC ALL ANY OF SUCH DEPUTED PERSONNEL. HOME COUNTRY YUM! ENTITY WILL ALSO NOT B E UNDER ANY OBLIGATION TO REPLACE ANY OF THE DEPUTED PERSONNEL IN THE EVEN T WHERE ANY OF SUCH PERSONNEL TERMINATE THEIR EMPLOYMENT WHILE UNDER DE PUTATION AT YRIPL FOR ANY REASON. 14. THE ASSESSEE HAS FURTHER FILED THE LETTER OF D EPUTATION WHICH IS AVAILABLE AT PAGE 429 OF THE PAPER BOOK AND OTHER EVIDENCES C ERTIFYING THE ROLE OF MR. VINOD MAHBOOBANI IN THE DAY-TO-DAY FUNCTIONING OF Y RIPL. HE NOT ONLY ATTENDED THE BOARDS MEETINGS OF THE SAID CONCERN, BUT HE ALSO SINGED THE FINANCIAL STATEMENTS OF YRIPL IN HIS CAPACITY AS DI RECTOR. THE SAID STATEMENT IS AVAILABLE AT PAGE 87 OF THE PAPER BOOK. THE EVIDEN CES NEED TO BE SEEN IN THEIR ENTIRETY AS THE BURDEN OF PROVING THAT THE FOREIGN ASSESSEE HAS A PE IN INDIA AND CONSEQUENTLY IT HAS TO BE TAXED ON THE BUSINESS GENERATED BY SUCH PE IS 11 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 INITIALLY ON THE REVENUE. SUCH IS THE PROPOSITION LAID DOWN BY HONBLE SUPREME COURT IN ADIT VS E-FUNDS IT SOLUTIONS INC. 399 ITR 34 (SC). IN SUCH A SCENARIO, THE QUESTION OF TAXABILITY OF SERVICE P E IN INDIA OF THE ASSESSEE COMPANY IS ANSWERED IN THE NEGATIVE. THE EVIDENCES HAVE ALSO BEEN GONE INTO BY THE CIT(A), WHO HAS GIVEN DETAILED FINDING IN PA RA 4.2.3, WHICH READS AS UNDER:- 4.2.3. NOW, IT IS TO BE SEEN WHAT KIND OF SERVICES HAVE BEEN PROVIDED AND WHO IS SERVICE PROVIDER. MR. VINOD MAHBOOBANI, A HI GHLY QUALIFIED AND EXPERIENCED PROFESSIONAL, WAS EMPLOYED WITH YRAPL A S VICE PRESIDENT - LEGAL AND WORKED IN THE CAPACITY OF A SENIOR LEGAL COUNSEL FOR THE OPERATIONS OF YRAPL IN ASIAN AND MIDDLE EAST COUNTR IES. HE WAS SENT ON DEPUTATION BY YRAPL TO YRIPL VIDE DEPUTATION AGREEM ENT BETWEEN TWO ENTITIES. CLAUSES 2.1 TO 2.7 OF DEPUTATION AGREEMEN T HAVE BEEN REPRODUCED ABOVE. PERUSAL OF THESE CLAUSES SHOW THAT SH. MAHBO OBANI WAS UNDER DIRECT CONTROL AND SUPERINTENDENCE OF YRIPL AND THE APPELLANT DISCHARGED THE EMPLOYEE FROM ALL OBLIGATIONS AND RIGHTS WHATSO EVER, INCLUDING LIEN ON EMPLOYMENT. THE FUNCTIONING OF THE DEVELOPMENT TEAM OF YRIPL WAS SUPERVISED BY MR. AJAY BANSAL (DIRECTOR IN YRIPL) W HO RESIGNED IN JANUARY 2007. IN ORDER TO APPOINT A SUITABLE PROFES SIONAL WITH REQUISITE QUALIFICATIONS AND EXPERIENCE IN THIS SPECIALIZED F IELD, MR. VINOD MAHBOOBANI WAS DEPUTED TO YRIPL TO PERFORM SUCH FUN CTIONS IN INDIA. THEREFORE, ESSENTIALLY HE WAS DEPUTED TO INDIA AS A REPLACEMENT FOR MR. AJAY BANSAL. ONCE HIS DEPUTATION PERIOD EXPIRED, MR . VINOD MAHBOOBANI WAS PERMANENTLY MOVED TO THE PAYROLL OF YRIPL TO CO NTINUE HIS EMPLOYMENT WITH YRIPL W.E.F AUGUST, 2008. DURING PE RIOD UNDER CONSIDERATION, SALARY WAS PAID BY THE APPELLANT TO SH. MAHBOOBANI IN SINGAPORE AND IT WAS REIMBURSED BY YRIPL ON COST TO COST BASIS. THUS, SALARY OF DEPUTED PERSON IS BORN BY YRIPL WHO IS AL SO RESPONSIBLE FOR TAX OBLIGATIONS ON SALARY PAYMENT. YRIPL HAS DEDUCTED T AX ON SOURCE ON SALARY PAID AND HAS ALSO PAID FRINGE BENEFIT TAXES AS APPLICABLE. THEREFORE, IT IS CLEAR THAT SALARY PAID TO SH. MAHB OOBANI HAS BEEN BROUGHT TO TAX IN INDIA AND YRIPL HAS CLAIMED IT AS ITS BUS INESS EXPENDITURE. THE AO HAS AGAIN TAXED THE SAME AMOUNT AS FTS WHICH AMO UNTS TO DOUBLE TAXATION. ALL THE FACTS AND CIRCUMSTANCE OF THE CA SE AND CLAUSES OF DEPUTATION AGREEMENT INDICATE THAT SH. MAHBOOBANI W AS EMPLOYEE OF YRIPL AND YRAPL HAD SIMPLY ACTED AS CONDUIT TO PAY SALARY TO HIM IN SINGAPORE AS HIS FAMILY WAS THERE IN SINGAPORE. 12 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 15. THE LD. DR FOR THE REVENUE HAS FAILED TO CONTRO VERT THE SAID FINDING OF THE CIT(A). IN THE ABSENCE OF THE SAME, IT CANNOT BE SAID THAT THE ASSESSEE HAD SERVICE PE IN INDIA. 16. ANOTHER ASPECT WHICH IS TO BE KEPT IN MIND FOR THE TAXABILITY OF SERVICE PE IS THAT THE EXPENSES OF SALARY COST NEEDS TO BE DED UCTED FROM THE BUSINESS INCOME GENERATED BY THE PE IN INDIA, WHICH IN THE P RESENT CASE WOULD BE NIL. IN OTHER WORDS, THERE WILL BE NO INCOME ATTRIBUTABL E TO THE PE. WE FIND NO MERIT IN THE STAND OF THE REVENUE IN THIS REGARD. 17. BEFORE PARTING, WE MAY ALSO REFER TO ANOTHER AS PECT OF TAXABILITY IN THE HANDS OF THE ASSESSEE COMPANY I.E. INCOME ARISING O N ACCOUNT OF DEPUTATION OF MR. VINOD MAHBOOBANI AND WHETHER THE SAME CONSTITUT E SERVICE PE. THE ISSUE IS WHETHER THERE IS RENDERING OF SERVICES OF TECHNI CAL NATURE, TAXABLE AS FTS UNDER ARTICLE 5(6) R.W. ARTICLE 12 OF THE DTAA. WE FIND NO MERIT IN THE STAND OF THE ASSESSING OFFICER IN THIS REGARD, I.E. EXISTENC E OF SERVICE PE AND PROVISION OF TECHNICAL SERVICES; THE SAME CANNOT CO-EXIST. IN A NY CASE UNDER ARTICLE 12 OF DTAA, THE CLAUSE OF MAKE AVAILABLE NEEDS TO BE FU LFILLED TO HOLD EXISTENCE OF PE FOR TECHNICAL SERVICES. IN THE ABSENCE OF FULFI LLMENT OF MAKE AVAILABLE CLAUSE, IT IS NOT POSSIBLE TO HOLD THAT THERE IS TA XABILITY OF FTS UNDER ARTICLE 12 OF THE DTAA. FURTHER, WE FIND NO MERIT IN THE STAN D OF THE ASSESSING OFFICER IN TREATING THE REIMBURSEMENT RECEIVED BY THE ASSESSEE COMPANY FROM YRIPL ON ACCOUNT OF SALARY PAYMENT AS FTS. WE HAVE ALREADY HELD IN THE PARAS ABOVE THAT MR. VINOD MAHBOOBANI WAS WORKING AS AN EMPLOYE E OF YRIPL AND NOT AS AN EMPLOYEE OF THE ASSESSEE COMPANY. THE REIMBURSE MENT OF SALARY HAD NO 13 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 ELEMENT OF INCOME AND WAS NOT TAXABLE. IN ANY CASE SINCE MR. VINOD MAHBOOBANI HAD ALREADY PAID TAXES IN INDIA ON THE A FORESAID SALARY, THE SAME AMOUNT BEING TAXED AS FTS IN THE HANDS OF THE ASSES SEE COMPANY, WOULD AMOUNT TO DOUBLE TAXATION. UPHOLDING THE ORDER OF THE CIT(A), WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE IN THIS REGA RD. 18. NOW, COMING TO THE NEXT ASPECT I.E. THE ATTRIB UTION OF BUSINESS INCOME TO THE ALLEGED PE OF THE ASSESSEE COMPANY IN INDIA. 19. THE ISSUE WHICH IS ARISING IN THE PRESENT APPEA L IS WHETHER THERE IS DAPE. THE ASSESSING OFFICER HAS ALLEGED THE EXISTEN CE OF DAPE ON ACCOUNT OF ALLEGED MARKETING ACTIVITIES UNDERTAKEN BY INDIAN ENTITY ON BEHALF OF THE ASSESSEE COMPANY. THE CASE OF THE ASSESSEE BEFORE US IS THAT IT IS AN ENTITY IN SINGAPORE AND HAS ENTERED INTO TLA WITH ONLY YRIPL, WHICH WAS IN CHARGE OF OPERATIONS OF PIZZA HUT & KFC RESTAURANTS IN INDIA. IN ORDER TO RUN ITS BUSINESS, YRIPL HAD FRANCHISED DIFFERENT OUTLETS AN D WAS ALSO RUNNING OWN STORES. YUM! RESTAURANTS MARKETING PVT.LTD. (IN SH ORT YRMPL) WAS SET UP FOR UNDERTAKING AMP ACTIVITIES ON BEHALF OF YRIPL AND I TS FRANCHISEES. THE ASSESSEE COMPANY WAS NOT A PARTY TO THIS AGREEMENT WHICH WAS EXCLUSIVELY BETWEEN THE INDIAN CONCERN AND ITS MARKETING COMPAN Y. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE MARKETING ACTIVITIES ALSO BENEFIT THE ASSESSEE COMPANY AND HENCE DAPE. 20. THE CONDITION WHICH NEEDS TO BE FULFILLED IN AR TICLE 5(8) OF THE DTAA BETWEEN INDIA AND SINGAPORE FOR HOLDING OF DAPE AND THE SAME READS AS UNDER:- 14 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 8. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPHS 1 AND 2, WHERE A PERSON - OTHER THAN AN AGENT OF AN INDEPENDENT STAT US TO WHOM PARAGRAPH 9 APPLIES - IS ACTING IN A CONTRACTING STATE ON BEH ALF OF AN ENTERPRISE OF THE OTHER CONTRACTING STATE THAT ENTERPRISE SHALL BE DE EMED TO HAVE A PERMANENT ESTABLISHMENT IN THE FIRST-MENTIONED STAT E, IF- (A) HE HAS AND HABITUALLY EXERCISES IN THAT STATE A N AUTHORITY TO CONCLUDE CONTRACTS ON BEHALF OF THE ENTERPRISE, UNLESS HIS A CTIVITIES ARE LIMITED TO THE PURCHASE OF GOODS OR MERCHANDISE FOR THE ENTERPRISE ; (B) HE HAS NO SUCH AUTHORITY, BUT HABITUALLY MAINTA INS IN THE FIRST- MENTIONED STATE A STOCK OF GOODS OR MERCHANDISE FRO M WHICH HE REGULARLY DELIVERS GOODS OR MERCHANDISE ON BEHALF OF THE ENTE RPRISE,' OR (C) HE HABITUALLY SECURES ORDERS IN THE FIRST-MENTI ONED STATE, WHOLLY OR ALMOST WHOLLY FOR THE ENTERPRISE ITSELF OR FOR THE ENTERPRISE AND OTHER ENTERPRISES CONTROLLING, CONTROLLED BY, OR SUBJECT TO THE SAME COMMON CONTROL, AS THAT ENTERPRISE. 21. THE AFORESAID CONDITIONS NEED TO BE SATISFIED F OR ESTABLISHING DAPE IN INDIA AND IN THE ABSENCE OF THE SAME, IT CANNOT BE SAID THAT THE ASSESSEE COMPANY HAD DAPE. THE ASSESSING OFFICER HAS FAILED TO ESTABLISH HIS CASE AND WHERE NONE OF THE CONDITIONS SPECIFIED IN ARTICLE 5(8) OF THE DTAA HAVE BEEN SATISFIED, THEN IT CANNOT BE SAID THAT THE ASSESSEE HAD ANY DAPE IN INDIA. IN ANY CASE, THE MARKETING ACTIVITIES UNDERTAKEN BY TH E YRMPL WERE ON BEHALF OF THE YRIPL AND ITS FRANCHISEES AND IN THE ABSENCE O F ANY LINK WHATSOEVER WITH THE BUSINESS OF THE ASSESSEE COMPANY, THERE IS NO M ERIT IN ATTRIBUTION OF CONTRIBUTION MADE BY THE INDEPENDENT THIRD-PARTY FR ANCHISEES, TO CONSTITUTE PE OF THE ASSESSEE COMPANY IN INDIA. 22. FURTHER, THE ASSESSEE HAS NO PE IN INDIA AND NO BUSINESS UNDERTAKEN IN INDIA, HENCE NO FIXED PLACE PE ALSO. 15 ITA NO.6018/DEL/2012 ASSESSMENT YEAR 2008-09 23. BEFORE PARTING, WE MAY ALSO REFER TO THE DECISI ON OF HONBLE DELHI HIGH COURT IN CENTRICA INDIA OFFSHORE PVT. LTD. (SUPRA). THE FACTS OF THE SAID CASE ARE AT VARIANCE WHERE CENTRICA UK WAS PROVIDING SER VICES TO INDIAN COMPANY THROUGH SECONDED EMPLOYEES TO ENSURE QUALITY CONTRO L AND MANAGEMENT OF THEIR VENDORS OF OUTSOURCED ACTIVITIES, WITH THE IN TENTION TO PROVIDE STAFF WITH APPROPRIATE EXPERTISE AND KNOWLEDGE ABOUT PROCESS A ND PRACTICES IMPLEMENTED. THE FACTS OF THE PRESENT CASE ARE AT VARIANCE AND H ENCE, THE SAID DECISION IS NOT APPLICABLE TO THE PRESENT FACTS. WE FIND NO ME RIT IN THE ISSUES RAISED BY REVENUE. THE GROUNDS OF APPEAL RAISED BY THE REVENU E ARE THUS DISMISSED. 24. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH JULY, 2020. SD/- SD/- (PRASHANT MAHARISHI) (SUSHMA CHOWLA) +, - / ACCOUNTANT MEMBER ! / VICE PRESIDENT / DATED : 06 TH JULY, 2020 * AMIT KUMAR * +%3$/&7(8+(&9 COPY OF THE ORDER IS FORWARDED TO : 1. 01 / THE APPELLANT 2. $201 / THE RESPONDENT 3. :& ; < / THE CIT(A) 4. = :& / THE PR. CIT 5. 6. (>?$/&/ * * / DR, ITAT, DELHI ?)@9 GUARD FILE. +% / BY ORDER , 2(&$/& // TRUE COPY // ' AB-C , * ASSISTANT REGISTRAR, ITAT, DELHI